Calculate the real deficit or surplus in the following cases: a. Inflation is 10 percent. Debt is $3 trillion. Nominal deficit is $220 billion.

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Calculate the real deficit or surplus in the following cases:

a. Inflation is 10 percent. Debt is $3 trillion. Nominal deficit is $220 billion.

b. Inflation is 2 percent. Debt is $1 trillion. Nominal deficit is $50 billion.

c. Inflation is –4 percent. (Price levels are falling.) Debt is $500 billion. Nominal deficit is $30 billion.

d. Inflation is 3 percent. Debt is $2 trillion. Nominal surplus is $100 billion.

(A) $80 billion surplus

(B) $30 billion deficit

(C) $50 billion deficit

(D) $160 billion surplus

Explanation:

(A) The inflation is 10%

= 10/100

= 0.1

Nominal deficit is $220 billion

Debt is $3 trillion

Therefore the real deficit can be calculated as follows

= Nominal deficit-(inflation × debt)

= $220 billion-(0.1×$3 trillion)

= $220 billion-$300 billion

= -$80 billion

= $80 billion surplus

(B) The inflation rate is 2%

= 2/100

= 0.02

The nominal deficit is $50 billion

The debt is $1 trillion

Therefore the real deficit can be calculated as follows

= $50 billion-(0.02×$1 trillion)

= $50 billion - $20 billion

= $30 billion deficit

(C) The inflation rate is 4%

= 4/100

= 0.04

The nominal deficit is $30 billion

The debt is $500 billion

Therefore the real deficit can be calculated as follows

= $30 billion-(-0.04×$500 billion)

=$30 billion-(-$20 billion)

= $30 billion + $20 billion

= $50 billion deficit

(D) The inflation rate is 3%

=3/100

= 0.03

The nominal deficit is $100 billion surplus

The debt is $2 trillion

Therefore the real deficit can be calculated as follows

= $100 billion + (0.03×$2 trillion)

= $100 billion + $60 billion

= $160 billion surplus

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.

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